FDIC Vice Chair Chides Regulators for "Overreaction" to Bank Failures

FDIC Vice Chair Travis Hill expressed concern that "an overreaction is underway" from regulators in response to the bank failures in March 2023.

In his remarks before the Cato Institute, Mr. Hill argued that banking agencies are "trying to do too much all at the same time." He said that even though banking industry conditions are "encouraging," regulators are "moving too quickly to impose a long list of new rules." He commented on the following proposals:

• Capital Standards. Mr. Hill asserted that banking agencies have "already gold-plated the underlying Basel standard that exists today." By adopting the proposal recently put forth to implement Basel standards, Mr. Hill said that the result would be "some combination of higher prices and less availability of products and services."
• Large Bank Resolution. Mr. Hill "generally support[ed]" recently proposed long-term debt requirements, which he said would be "helpful" regardless of how a bank is resolved and the extent of its resolution planning. On recently proposed amendments to the Insured Depository Institution, Mr. Hill commented that the proposal should have focused on key areas of resolution planning, such as "maximizing the likelihood of a weekend sale in the event of a regional bank failure."
• Bank Merger Policy. Mr. Hill recommended that the FDIC keep in mind the (i) "notable contrast" from when the bank merger framework was first adopted and the framework today, under which banks are no longer restricted by geographical limits, (ii) opacity of the current merger application process, which can cause banks to have to wait months on a final decision from regulators even after a public announcement and (iii) extent to which policymakers are willing to pursue merger policies that encourage even more competition.
• Liquidity Rules. Mr. Hill acknowledged "the impulse to reconsider aspects of [the] liquidity rules" following the bank failures in March 2023. However, he encouraged regulators to "think holistically" regarding reforms to ensure that they reflect the ways in which banks behave in response to "the full spectrum of possible stress events."
• Supervision. Mr. Hill cautioned supervisors to reexamine issues related to the March 2023 bank failures "with humility," reminding them that bank supervision "cannot and should not prevent all bank failures." He contended, however, that supervisors should consider ways to (i) complete examinations and communicate findings in a timelier manner and (ii) "better prioritize core safety and soundness risks."
• Climate Change. Mr. Hill said that "never once have I ever heard a bank supervisor or FDIC staff member mention a climate event as causing stress at a particular bank."